When you see “Breaking $80/barrel…” all over the screen, you know that something big is going on. After the European session on Friday, copper and oil broke the recent stalemate and fell sharply. The commodity market is a bit like “entering late autumn.” , the coolness is getting stronger.” After two months of oscillations, the Federal Reserve raised interest rates again by 75 basis points at the early morning meeting of September 22. After a short period of weighing, the market’s sharp surge in the dollar crushed everything and hit the market’s appetite for risky assets. Confidence and market outlook expectations, the overall risk appetite of the financial market has cooled down again, and the balance of commodities has once again tilted towards the short side. WTI crude oil fell below the US$80/barrel mark for the first time in eight and a half months, which was a heavy blow to the bulls.
Unknowingly, oil prices have almost completely given up their gains during the year. After the outbreak of the Russia-Ukraine conflict, Western sanctions on Russian energy triggered market panic. Geographical factors once caused oil prices to soar by 70%. Half a year later, international oil prices increased by only 0.1% compared with the beginning of the year. Less than 10%, WTI crude oil fell below the US$80/barrel mark. Standing at the mid-year point three months ago, many institutions still rationally predicted that oil prices would fall back in the second half of the year, but returning oil prices to the position at the beginning of the year seemed to be a very unlikely event at the time, and this goal is now It seems within reach.
The Federal Reserve’s continued sharp interest rate hikes have put tremendous pressure on the financial market. Many countries around the world are facing high inflation, currency depreciation, downward pressure on the economy caused by capital outflows, and reduced spending power. The central banks of various countries are under pressure to follow up and increase interest rates, which has put global economic growth concerns into panic mode, which will weaken economic activities and short-term crude oil demand prospects; the current weak performance on the demand side of the crude oil market continues to plague oil prices, previous reports We mentioned in the article that observing the market, we can see that the overall market confidence is constantly losing, so that geographical factors including the European energy crisis, Western countries’ price restrictions on Russian oil, and Russia’s partial mobilization to escalate tensions cannot effectively boost market sentiment. . With the tightening of global liquidity and downward pressure on the economy, the overall downward trend in commodity prices is the general trend, and the oil price falling below the US$80/barrel mark has further dampened market confidence.
It is difficult for local bright spots on the supply and demand level to restore confidence in the market. No matter how tough-talking the bulls are, they have to admit that the supply and demand level of the crude oil market has been far away from the shortage risk of the energy crisis in the first half of the year. This was reflected in Russian President Putin’s video speech on September 21 After China announced partial mobilization, the reaction process of oil prices was very obvious. As soon as the news broke, oil prices reacted quickly, reaching over $2 in the short term. Obviously investors are still highly sensitive to the impact of geopolitical risks on oil prices, regardless of Russia’s status as a major power or its importance as a supplier in the energy market. Any decision made by Russia will keep the market on high alert. This move by Russia means that the conflict between Russia and Ukraine will further escalate and the risk of geopolitical loss of control will heat up again.
As an important strategic material, the oil market reacted very sensitively to this, and investors quickly put a risk premium on this. This was the market’s stress response, but this strength did not last long. The oil price that day was Gains from the incident were given back. The current supply and demand level of the crude oil market is more relaxed than at the beginning of the year. Although the conflict has escalated again, investors are not as panicked as they were in March. After the short-term push, funds have not rashly continued to pursue higher prices. Obviously, investors are not in a hurry to chase the rise, but will wait and see how the conflict between Russia and Ukraine will unfold before making an assessment. If the situation worsens and the West imposes more severe energy sanctions on Russia and prevents Asian buyers from buying Russian oil, that may This has once again brought new stimulus to oil prices. However, considering that the market has experienced repeated corrections in the first half of the year, investors have still maintained sufficient restraint. The specific impact of this incident will be gradually tracked as the incident develops.
The lower-than-expected demand in the crude oil market throughout the third quarter has been repeatedly confirmed to be another important negative factor in addition to macro negative factors. The implementation rate of OPEC+ production cuts is very eye-catching. Data show that OPEC+ production performance continues to be significantly lower than its predetermined production target. The gap between quotas and actual production widened to 3.58 million barrels per day in August. According to OPEC data, the collective daily crude oil production of the 10 OPEC members bound by the agreement is 1.399 million barrels below the quota, while the daily crude oil production of non-OPEC members is more than 2 million barrels below the quota, at 2.185 million barrels. However, as more and more data prove that the judgment on the recovery of the demand side at the beginning of the year is overly optimistic, demand expectations have been repeatedly lowered, and it is difficult for the supply and demand aspects to bring upward momentum to oil prices. In fact, as the global oil market inventory continues to accumulate , the suppression of oil prices has become increasingly obvious. Last week, U.S. high-frequency data showed that oil inventories continued to increase as a whole, which made it gradually more difficult for oil prices to strengthen. This is also the reason why the recent rebound in oil prices has become shorter and weaker.
One of the important reasons why oil prices have stayed at US$80 per barrel during the past period is that after OPEC began to realize that the crude oil market was facing a very unfavorable situation in August, it began to express its intention to intervene in the market. To ensure the stability of the oil market, the September monthly meeting announced that it would cut production by 100,000 barrels per day in October, which did not bring confidence to the market. As the weak performance of oil prices continues, it is not surprising that OPEC will most likely take further measures at the October meeting. Measures have been taken to try to prevent the decline of oil prices. This kind of intervention from the supply side has made investors who are bearish about the market outlook afraid to be too aggressive in shorting oil prices. Objectively assessing that there is still enough room on the supply side to manage expectations and keep oil prices within a satisfactory range. However, it is difficult to bring positive expectations to the market and maintain strong oil prices by relying solely on supply side management. pattern.
Currently, China’s crude oil processing volume has continued to recover to a five-month high, and its main refineries are also close to the normal operating range, which means that China’s crude oil demand is expected to increase significantly. In the United States, the refining volume last week was also at a recent high. The increase in processing volume prompted it to significantly increase the export of refined oil. The export of refined oil such as gasoline, diesel, coal, etc. was significantly higher than the same period last year. Its domestic demand, especially gasoline, is still very obviously weak. At the same time in previous years. Generally speaking, although there are some bright spots in the current supply and demand level of the crude oil market, such as the increase in China’s refining and processing volume, overall, the trend of accumulating stocks is still continuing. The expectations of weak demand in the past period have been basically realized in the price. From now on According to the demand outlook for the fourth quarter by authoritative institutions, the impact on oil prices is neutral and it is difficult to bring effective power to push up. Therefore, whether there are changes in OPEC production management and Russian supply decline on the supply side will become the focus of subsequent market attention. .
Although oil prices fell sharply again last Friday night, and WTI crude oil also fell below the key US$80/barrel mark, it is worth noting that the monthly price difference in the crude oil market did not weaken further, but remained stable, which means The decline in the crude oil market is not driven by supply and demand. Rather, like other risk assets, it is affected by the pessimistic expectations brought about by macro-negatives. This is also the core driver of the current price fluctuations of risk assets.
The Federal Reserve’s interest rate hikes continue to have a huge impact on the world. The U.S. dollar has strengthened significantly while other global currencies, including the RMB, have experienced significant depreciation. Risk assets, including commodities, have been deeply affected. The differentiation at the exchange rate level not only reflects the pricing currency factor, but also affects the expectations of domestic and foreign investors. Commodities including crude oil show a strength difference between the domestic market and the US dollar-denominated market. Although domestic commodities also fell, their performance was relatively Stronger than outside market. Judging from the current supply and demand status of the crude oil market itself and the subsequent potential changes on the demand side and supply side, oil prices do not have much room for downside. After falling below 80 US dollars per barrel, oil prices are suspected of being underestimated. However, the current negative macroeconomic impact is the core driver of oil prices, which makes the sustainability and goals of the downward trend in oil prices difficult to quantify. We need to observe subsequent changes in market sentiment. What the market lacks is confidence. Once the sentiment improves, there is a high probability that there will still be a rebound. Therefore, while maintaining the trend mentality, short orders should pay attention to protecting profits and preventing extreme market conditions.
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